What now for retention security after Maxcon v Vadasz?

On 14 February 2018 the High Court of Australia handed down its decision in Maxcon Constructions Pty Ltd v Vadasz [2018] HCA 5.  This was the High Court’s first decision on the operation of the South Australian Building and Construction Industry Security of Payment Act 2009 (‘the SOP Act’). 

On the same day, the High Court also delivered its decision in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4, which considered the same key issue as Maxcon under the equivalent New South Wales legislation. 

Our earlier article considered these two decisions generally.  In summary, the High Court held that an error in an adjudication determination is not a ground for a Court to set aside the determination, unless the error relates to the jurisdiction or authority of the adjudicator.  The decisions confirm that an adjudicator’s determination of a disputed payment claim under the Act will only be set aside by Courts in very limited circumstances.

An immediate practical implication from the High Court’s decisions relates to ‘pay when paid’ provisions, and the use of retention amounts as security.

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The High Court and the circumstances in which a Court may review (and set aside) a determination made by an adjudicator under the Security of Payment legislation

The Security of Payment (‘SOP’) legislation enacted in each State in Australia allow a contractor to make a payment claim during the course of a construction contract and, in the event of a dispute, to have the amount of that claim determined by an adjudicator.

Its purpose is to ‘stamp out the practice of developers and contractors delaying payment to subcontractors and suppliers’ because it is recognised that ‘cashflow is the life blood of the construction industry’.

SOP therefore sets out a ‘pay now, argue later’ regime, which is designed to operate quickly.  The time limits imposed by SOP have been ‘carefully calibrated’, are ‘brutally fast’ and are designed to have a prompt adjudication of payment disputes.  Accordingly, SOP contains no right of appeal from the decision of an adjudicator because an appeal would have the effect of delaying payment of adjudicated claims.

Circumstances where Courts can review SOP determinations

However, the common law, which applies in Australia, has always recognised, as fundamental to the rule of law, a right to have access to a Court to determine rights and liabilities.  The Courts have always, therefore, regarded themselves as having power to review and, if needs be, set aside administrative decisions.   The Courts have also recognised that Parliament can, in certain cases, limit (but not completely exclude) the circumstances in which a Court may review an administrative decision.

The extent to which a Court can review a decision made by an adjudicator under SOP has now been clarified by the High Court in two decisions:  Probuild Constructions (Aust) Pty Limited v Shade Systems Pty Limited [2018] HCA 4 and Maxcon Constructions Pty Limited v Vadasz [2018] HCA 5.

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SOP and technology don’t always mix: Another reminder to be cautious when serving documents under security of payment legislation

The 'pay now, argue later' security of payment ('SOP') legislation imposes short and strict deadlines for service of documents.  Ineffective service can have serious consequences on the ability to recover progress claims under the legislation.

In particular, parties to security of payment disputes need to be very careful about serving documents electronically.

In Parkview Constructions Pty Limited v Total Lifestyle Windows Pty Limited [2017] NSWSC 194, the Supreme Court of New South Wales ruled that delivery of a USB drive containing an adjudication application did not, by itself, satisfy the requirements for valid service. 

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Commercial credit arrangements - don't take personal guarantees for granted

Email is an efficient way to conduct business, but is not always the best way to conclude agreements.

A decision of the District Court of South Australia highlights the importance of making sure commercial credit arrangements are properly documented. This is especially so when most documents are now exchanged by email rather than by hard copy.

In Solar Juice Pty Limited v Mintz [2017] SADC 37, Judge Soulio found that our client, the director of a company in liquidation, had not agreed to provide a personal guarantee to a former supplier of the company. Although the director had filled out and signed parts of a form entitled ‘Credit Application/Directors Guarantee’, Judge Soulio found that the email copy of the document signed by the director did not include the guarantee clause.  

As a result, the Court found that the supplier and the director had agreed credit terms for the supply of goods, but that the director had not agreed to the terms of a guarantee.

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High Court of Australia considers security of payment legislation for the first time

On 21 December 2016 the High Court of Australia delivered its first judgment on the security of payment regime, Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence [2016] HCA 52.

Overturning a decision of the New South Wales Court of Appeal, the High Court confirmed that the existence of a ‘reference date’ is a necessary precondition to make a valid payment claim under security of payment legislation.

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